Small and medium enterprises feel the pinch as the economy floundersWith handicraft exports down to near zero and no revenues coming in, closure looms for these firms.
Kedar Rajbahak shut down his swirl candy factory from Sunday after the government ordered that all non-essential services be closed in order to maintain social distancing, and prevent any possible spread of Covid-19.
His company, Bishnu Maya Confectionery, produces handmade chocolate. Closing down means loss of revenue, and he does not know how he is going to pay back his loans, the rent for the premises, and the salaries of his 30 workers.
Rajbahak plans to be back in business after 15 days, but he has no idea if things will get better by then or he will have to remain closed for an extended period.
He has paid the wages of his employees till Friday. Inventory worth around Rs1.5 million is piled up in his warehouse as sales of his products started declining from mid-January, he said. “Demand has dropped in the last three months,” he said.
Sunil Shrestha, who has been running a lokta paper business for 27 years, said he was running out of cash with sales down to almost zero.
His company, Shubham Handicraft, exports 80 percent of its products to Europe and the rest to the United States. But his latest shipments are held up at customs as Nepal cancelled all international flights from Monday.
Shrestha operates out of his home in Kuleshwor. He says he has not been able to pay the small farmers who supply the raw materials needed to make paper, nor his nine workers who make the products.
Rajbahak and Shrestha are not alone; many micro and small and medium enterprises are having a tough time and are inundated with problems
Due to the halt in the international export of goods and services produced by small and medium entrepreneurs, and declining domestic consumption with people focusing on buying daily essentials, business has fallen more than expected, said Umesh Prasad Singh, acting president of the Federation of Nepal Cottage and Small Industries.
Around 60-70 percent of the small and medium enterprises have already pulled down their shutters, and more are expected to follow suit in the coming days. Business has plunged in the same proportion, he added.
Singh said that these enterprises could pay the salaries of their workers for up to two months, but if business continues to remain down for a longer period, they will not be able to make payment. Most export businesses are on the verge of closure.
Sanam Chitrakar, a partner at Biruwa Advisors, said that the export business had fallen by 90 percent. If the government loosens VAT returns and bank loans, it would be a big help to small and medium enterprises.
“We are not asking the government to provide financial aid, we are asking that it be flexible in policies during a situation like this,” he said. Most of the micro and small and medium enterprises belong to the handicraft sector which has been hit hard in the past three months, and this will have a big impact.
It will be a relief if the government creates a basic enabling environment for micro, small and medium entrepreneurs. “Many enterprises will close down due to the financial crisis,” he said.
As most of Nepal's handicraft products are shipped to the United States and Europe, it will take a long time for business to get back to normal, said Singh.
Mohan Raj Joshi, head of SME at Nabil Bank, said that the bank was observing a slight slowdown in people coming with loan proposals for small and medium enterprises.
“We used to think that the Covid-19 outbreak would affect only tourism and aviation, but its impact is being seen on the overall economy of the country,” he said. The bankers association is also conducting discussions regarding this subject, he added.
Gunakar Bhatta, spokesperson for Nepal Rastra Bank, said that they were studying the impact of Covid-19 on small and medium enterprises. “The government will provide relief through a one-window system as we are positive about providing support to small and medium enterprises,” he said.
According to the federation, there are around 452,000 registered small and medium enterprises in the country. Among them, 235,000 have renewed their permits and around 500,000 are operating without registration.
The sector provides 3.6 million jobs with each firm employing one to nine workers. Small and medium enterprises account for 6 percent of the country’s gross domestic product, Singh said.